1. CHAPTER 3-- ANALYZING CHANGES IN FINANCIAL POSITION

2. Business Transaction:  Any financial event that causes a change in the financial position of a business Example  Withdraw cash  Purchased asset Originate from source documents

3. Source Document:  Business paper that is the original record of a transaction; provides proof of transaction  Includes all information needed to record the transaction

4. Examples of Source Documents:  Receipts  Invoices  Bills  Cheques

5. Objectivity Principle  GAAP states all accounting transactions will be recorded based on facts and not personal opinion  Source documents provide proof/fact of transaction

6. METROPOLITAN MOVERS – TRANSACTION ANALYSIS :  Using the balance sheet on p. 61 fill in the Equation Analysis Sheet for the BEGINNING BALANCES

7. ASSETSLIABILITIESO.E. CashAccounts Receivable EquipmentTrucksAccount s Payable Laon Payable J. Hofner, Capital B. CavaK. Lincoln Central Supply Mercury Finance Beg. Balances Trans. 1 Trans. 2 Trans. 3 Trans. 4 Trans. 5 Trans. 6 Trans. 7 New Balances

8. ASSETSLIABILITIESO.E. CashAccounts Receivable EquipmentTrucksAccount s Payable Laon Payable J. Hofner, Capital B. CavaK. Lincoln Central Supply Mercury Finance Beg. Balances 13 5001 3002 50011 50024 5001 75018 37033 180 Trans. 1 Trans. 2 Trans. 3 Trans. 4 Trans. 5 Trans. 6 Trans. 7 New Balances

9. Transaction 1  Metropolitan Movers pays $1 200 cash to Mercury Finance.  Cash decreases $1 200  Accounts Payable- Mercury Finance decreases $1 200

10. ASSETSLIABILITIESO.E. CashAccounts Receivable EquipmentTrucksAccount s Payable Laon Payable J. Hofner, Capital B. CavaK. Lincoln Central Supply Mercury Finance Beg. Balances 13 5001 3002 50011 50024 5001 75018 37033 180 Trans. 1 -1 200 Trans. 2 Trans. 3 Trans. 4 Trans. 5 Trans. 6 Trans. 7 New Balances

11. Transaction 2  K. Lincoln, who owes Metropolitan Movers $2 500, pays $1 100 in partial payment of the debt.  Cash increases $1 100  Accounts Receivable – K. Lincoln decreases $1 100

12. ASSETSLIABILITIESO.E. CashAccounts Receivable EquipmentTrucksAccount s Payable Laon Payable J. Hofner, Capital B. CavaK. Lincoln Central Supply Mercury Finance Beg. Balances 13 5001 3002 50011 50024 5001 75018 37033 180 Trans. 1 -1 200 Trans. 2 +1 100 -1 100 Trans. 3 Trans. 4 Trans. 5 Trans. 6 Trans. 7 New Balances

13. Transaction 3  Equipment costing $1 950 is purchased for cash.  Cash decreases $1 950  Equipment increases $1 950

14. ASSETSLIABILITIESO.E. CashAccounts Receivable EquipmentTrucksAccount s Payable Laon Payable J. Hofner, Capital B. CavaK. Lincoln Central Supply Mercury Finance Beg. Balances 13 5001 3002 50011 50024 5001 75018 37033 180 Trans. 1 -1 200 Trans. 2 +1 100 -1 100 Trans. 3 -1 950 +1 950 Trans. 4 Trans. 5 Trans. 6 Trans. 7 New Balances

15. Transaction 4  A new pick-up truck is purchased at a cost of $18 000. Metropolitan Movers pays $10 000 cash and arranges a loan from Mercury Finance to cover the balance of the purchase price.  Cash decreases $10 000  Truck increases $18 000  Mercury Finance increases $8 000

16. ASSETSLIABILITIESO.E. CashAccounts Receivable Equipment TrucksAccounts Payable Laon Payable J. Hofner, Capital B. CavaK. Lincoln Central SupplyMercury Finance Beg. Balances 13 5001 3002 50011 50024 5001 75018 37033 180 Trans. 1 -1 200 Trans. 2 +1 100 -1 100 Trans. 3 -1 950 +1 950 Trans. 4 -10 000 +18 000 +8 000 Trans. 5 Trans. 6 Trans. 7 New Balances

17. Transaction 5  Metropolitan Movers completes a storage service for B. Cava at a price of $1 500. A bill is sent to B. Cava to indicate the additional amount that Cava owes.  Accounts Receivable increases $1 500  J. Hofner, Capital increases $1 500

18. ASSETSLIABILITIESO.E. CashAccounts Receivable Equipment TrucksAccounts Payable Laon Payable J. Hofner, Capital B. CavaK. Lincoln Central SupplyMercury Finance Beg. Balances 13 5001 3002 50011 50024 5001 75018 37033 180 Trans. 1 -1 200 Trans. 2 +1 100 -1 100 Trans. 3 -1 950 +1 950 Trans. 4 -10 000 +18 000 +8 000 Trans. 5 +1 500 Trans. 6 Trans. 7 New Balances

19. Transaction 6  J. Hofner, the owner, withdraws $500 for personal use.  Cash decreases $500  J. Hofner, Capital decreases $500

20. ASSETSLIABILITIESO.E. CashAccounts Receivable Equipment TrucksAccounts Payable Laon Payable J. Hofner, Capital B. CavaK. Lincoln Central SupplyMercury Finance Beg. Balances 13 5001 3002 50011 50024 5001 75018 37033 180 Trans. 1 -1 200 Trans. 2 +1 100 -1 100 Trans. 3 -1 950 +1 950 Trans. 4 -10 000 +18 000 +8 000 Trans. 5 +1 500 Trans. 6 -500 Trans. 7 New Balances

21. Transaction 7  Truck requires engine repair. J. Hofner pays $75 cash when the truck is picked up.  Cash decreases $75  J. Hofner, Capital decreases $75

22. ASSETSLIABILITIESO.E. CashAccounts Receivable Equipment TrucksAccounts Payable Laon Payable J. Hofner, Capital B. CavaK. Lincoln Central SupplyMercury Finance Beg. Balances 13 5001 3002 50011 50024 5001 75018 37033 180 Trans. 1 -1 200 Trans. 2 +1 100 -1 100 Trans. 3 -1 950 +1 950 Trans. 4 -10 000 +18 000 +8 000 Trans. 5 +1 500 Trans. 6 -500 Trans. 7-75 New Balances

23. New Balance  Calculate the new balances of each column.

24. ASSETSLIABILITIESO.E. CashAccounts Receivable Equipment TrucksAccounts Payable Laon Payable J. Hofner, Capital B. CavaK. Lincoln Central SupplyMercury Finance Beg. Balances 13 5001 3002 50011 50024 5001 75018 37033 180 Trans. 1 -1 200 Trans. 2 +1 100 -1 100 Trans. 3 -1 950 +1 950 Trans. 4 -10 000 +18 000 +8 000 Trans. 5 +1 500 Trans. 6 -500 Trans. 7-75 New Balances 875 2 8001 400 13 45042 5001 75025 17034 105

25. Do the total Assets = Total Liabilities + Owner’s Equity? Total Assets= Total Liabilities + Owner’s Equity 61 025 = 26 920 + 34 105 61 025

26. Summary of Steps in Analyzing a transaction: 1. Identify all items (A,L,OE) that must be changed & make necessary changes (increase or decrease) 2. Make sure at least 2 accounts are affected (ie. A & A, A & L, A & OE) 3. Accounting Equation must balance after each transaction

27. *OE is NOT always affected in each transaction  If O.E. has changed:  Increase $ earned (Revenue)  Increase owner investment (Capital)  Decrease owner withdrawal (Drawings)  Decrease Costs of operating business (expense)  Decrease loss on sale (expense)